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>> One problem with this valuation: it posits a value based on one transaction
>> (say, buying an airbag). Yes and no. One approach is to average out such purchases and derive a
'mean value', but a better approach is to consier the following. Suppose you buy a 'safety' item for $2000, but don't buy another one for
$1000 even though the cheaper one has the same chance of saving your life, you
either
- You are fundamentally irrational (and yes, many people are).
- You are buying the item for some other reason than safety (comfort,
status, discussion piece, trying to chat up the salesgirl or whatever).
- Don't have complete information about the products and risks. (Misleading
advertising and leftist hysteria commonly exacerbate this problem).
>> But we make transactions like this all the time, usually without any idea of
>> how effective our safety measures are, or sometimes even how much they
>> cost. It is true that people are not good at assessing small probabilities. The
hoon who drives at 150Km/h thinks he is invincible because he's done it 50
times before without mishap. The traveler who refuses to fly because he's
terrified of crashing, without considering that passenger jets crash about one
in a million takeoffs and landings. etc. >> For example, I replace the battery in my smoke detector every year. It
>> costs me less than $1 - how likely is it to save my life? I keep a shotgun next
>> to my bed - it cost me $125. Does it have a positive effect on my personal
>> safety or a negative one? The probability I mentioned in the original article is about your
assessment of the probability of saving your life. If you believe your chances
of a home invasion are one in ten, and I think they are closer to 1 in 2500
(without knowing your race), then it's about your estimate, not mine. >> Supposing that by making such purchases I have
>> implied a self-value doesnt hold up - though I will concede that you could use
>> my perception of the risks and costs of these things in the formula, rather
>> than their actual risks and costs. Yes, exactly. You cannot define objective probability in any useful way -
it's about your perception. >> Even if you adjust for perceived benefits and costs, and take the aggregate of
>> many such transactions, the fact that virtually no-one would trade their life
>> for the calculated sum calls it into question. For myself, I would not trade my
>> life for $1 trillion US ... far more than your formula would render my
>> valuation. Not quite true. Lets pose the problem in a different way. How much would you pay for a device which would be absolutely guaranteed to
extend your (quality) life by one year? Suppose that you could start saving
now, and put some away and pay for it when your life was coming to and end to
extend it. You would pay $US1Trillion? I don't think so. Most people wouldn't even pay
50% of their disposable income. When it actually came to it (pay for the device within 10 minutes or die),
people would be willing to hand over everything they had, but it's not the same
thing.
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